Meme stock mania has returned.

Just like in 2021, retail traders are buying struggling companies with a lot of short interest.

Meme-stock leader Keith Gill (aka “Roaring Kitty”) made a cryptic post on X Sunday night. And that sparked it all off.

Gill was a major figure during the last meme stock craze. Netflix released a movie last year titled Dumb Money about Gill and his role in the 2021 mania. And many people viewed his return to social media with enthusiasm.

GameStop (GME) and AMC Entertainment (AMC) soared by as much as 307% and 308%, respectively, in just two days.

Ultimately, though, this market action is a sideshow.

It’s a fool’s errand to trade it… And these stocks are already collapsing just as fast as they rocketed up. A mistimed trade like this can lead to losing your shirt within a few hours.

But that doesn’t mean there isn’t a way to make money from this mania.

One market sector benefits from the increase in retail trading. And it’s no coincidence that this industry is trending higher.

So today, let’s take a look…

Trading Beneficiaries

The SPDR S&P Capital Markets ETF (KCE) is an exchange-traded fund. Its holdings include asset managers, financial exchanges, investment banks, and brokerages.

It’s a one-stop shop to target companies that are directly involved in trading and investing.

As you can see in the chart below, KCE suffered a steep drop after its peak in November 2021. It treaded water for over a year until picking up steam and recouping its losses.

Now KCE has broken through resistance and is sitting at all-time highs. Its resistance line has now become a support line.

But we’re eyeing more than just a breakout in KCE. Two bullish signals are clear:

1. A Relative Strength Index (RSI) of 65 shows KCE is firmly in an uptrend. But the stock isn’t yet showing signs of being overbought.

2. The blue moving average convergence/divergence (MACD) line is trading above the orange signal line. Both are above the zero (0.00) line, which shows short-term momentum.

Along with these indicators, KCE is trending higher. And it has momentum supporting its shares.

And this recent strength could continue due to the nature of the companies that make up KCE.

These companies tend to benefit from the rise of retail trading.

Some of the top holdings in KCE include Virtu Financial (VIRT). It’s a leading market maker for stocks and options.

VIRT makes up 2.04% of the fund. During the early 2021 mania, the company recorded its most profitable quarter ever.

Charles Schwab (SCHW) and Interactive Brokers Group (IBKR) and are other large holdings. (They make up 1.86% and 1.82%, respectively, of the ETF.)

Both directly benefit from a rise in retail trading. In the first three months of 2021, SCHW soared 27.5%, and IBKR rallied 28.8%.

So given the tailwind behind KCE, what should we watch for next?

Rally Runway

We could be at the start of a major run higher for KCE, especially if the meme stock excitement sticks around.

The ETF previously broke out of a multiyear resistance level at the end of 2020. The ETF went on to climb 63% over the following 12 months.

Now, at that time, retail investors flooded the market with liquidity.

They had extra money from stimulus checks. And they also had limited spending due to the COVID lockdowns.

So circumstances have changed. But even with those differences in mind, signs suggest this ETF has room to run higher.

But if KCE fails to move higher, watch out for its support line around $110.

If the ETF falls through it, KCE will struggle to remain in an uptrend.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict